By Keith Hays
Great technological revolutions occur when innovation offers a new way to solve challenges at a price that the market can afford to pay — or ill afford to ignore, considering the benefits. Some noteworthy trends are imminent in 2018, as longstanding and emerging water-sector obstacles get countered by a variety of digital solutions.
Globally, the water industry has embarked on a journey toward digital transformation. The sector can no longer sustain itself in isolation from the technological shifts happening in other infrastructure industries and at the customer level. These changes are happening due to a multitude of innovations that fall under several banners: “smart water,” “digital water,” and “Internet of Things,” (IoT). Irrespective of nomenclature, change is underway.
Smart water solutions — hardware, software, and data analytics to improve capital and operating efficiencies — are taking hold in water, driving more than $35 billion US of municipal spending over the next decade. At the root of this buildout are continued financial pressures on water suppliers and users to do more with less — and the proliferation of cloud-based information technology presents a viable solution.
Global smart water markets are being shaped by key themes, including water scarcity, customer demand for improved service at lower cost, increased environmental awareness, regulatory compliance measures, and technology firms’ innovations to address these challenges.
Bluefield Research sees eight key trends emerging in 2018 that build on these themes and will continue to push smart water technologies to the forefront of industry decision-making:
1. Private Equity Sees Opportunity In Smart Water
There’s a growing trend of consolidation across software and data management platforms, as financial and strategic investors look to boost returns by capturing synergies across portfolio companies. We are seeing more and more venture capital and private equity companies entering the space. Two recent examples include the EQT/Innovyze and XPV Water Partners/Aquatic Informatics. SoftBank snapped up equity’s majority in OSIsoft, while Optimatics raised capital from venture and strategic investors to support growth initiatives.
Smart water deals represent an increasing share of water mergers and acquisitions and now hold much more value. A new benchmark was set in smart water M&A (mergers and acquisitions) as private equity group EQT completed its smart water portfolio, paying $270 million for Innovyze, reflecting a 16x EBITDA (earnings before interest, taxes, depreciation, and amortization ) for the profitable network modeling and business analytics platform.
2. Project Finance Gets Smarter
Innovations in financing structure increase the focus on performance, which encourages adoption of smart water technologies. We see this with the impact bond financing, essentially outcome driven bonds with specific reference to water and wastewater infrastructure outcomes. One example is DC Water’s issuance of an environmental impact bond to fund its green infrastructure initiative.
3. Asset Management Becomes Key Focus
Within the smart water sector, asset management has emerged as the key battleground, where players from across the utility operating spectrum are extending their offerings to incorporate assetcentric products and services. From multiple angles (leak detection, pressure management, workflow management), solutions providers are looking to operationalize historic data in asset-centric decisionmaking. Municipal water utilities have never had such a wide commercial offering of solutions to improve how they plan, monitor, and manage their critical water infrastructure.
4. Artificial Intelligence (AI) At The Core
AI is taking off, and water is no exception. We see machine-learning techniques at the core of multiple firms’ offerings, which greatly advance utilities’ ability to operationalize data and monetize insights. Companies that are using AI to “smarten” water systems include Pluto AI, EMAGIN, Fracta, and Fathom.
5.Stormwater At Resilience Ground Zero
In the wake of hurricanes and the push for resilience to climate change globally, we see an increase in real-time control solutions for smarter stormwater management which present an opportunity to avoid heavy CAPEX spending and maximize the use of existing assets. Smart sewer solutions introduce more flexibility in existing collection networks, which maximize storage and retention capacity of existing wet infrastructure assets with real-time control systems.
6. Cybersecurity To Remain A High Priority
With hacking incidents in the U.S. and elsewhere, as well as utilities’ move into the cloud, cybersecurity is becoming a key priority with the European Union developing standards and IT departments increasing focus.
7. Convergence Of Infrastructure Communication
Across the smart meter landscape, the addressable market for information communications technology (ICT) is on the cusp of change, as diversified municipal utilities seek cost efficiencies through interoperable communications infrastructure across water, gas, and electric meters. ICT firms like Cisco, Verizon, AT&T, Huawei, and Vodafone are at the forefront of emerging communications protocols. This is placing pressure on traditional smart metering players like Itron, Landis+Gyr, Sensus, and Elster — which have controlled the advanced metering infrastructure (AMI) market to date.
8. Smart Water Technologies To Play A Key Role In Utility Of The Future
Many municipal utilities are seeking to achieve cost efficiencies and improve operational efficiencies. Utilities are becoming more customer-centric, and smart water is no exception. India is a good example of this, with water playing a key role in its Smart Cities Mission. A broader trend of digitalization is changing the fundamental relationship between a utility and its customer, morphing an isolated supplier into a connected service provider, and water is no exception.
We at Bluefield Research are optimistic about the scaling opportunities for smart water, globally. Our water experts are tracking drivers, opportunities, and strategies shaping this growing market.
About The Author
Keith Hays is a seasoned market insight professional with over 15 years’ experience in the telecom and energy sectors as a management consultant and industry analyst. Prior to joining Bluefield Research, Keith built market insight services for Pyramid Research, Emerging Energy Research, and IHS in the U.S. and Europe, providing strategy guidance to infrastructure investors, global energy companies, utilities, and equipment manufacturers. He holds a BA from Columbia University in English Literature and Hispanic Culture, and an MBA from IESE Business School. He leads Bluefield Research’s team of water experts in Barcelona, Spain.